On the world currency market, the euro is a direct competitor to the U.S. dollar. Against this background, they are often in certain antiphase. When trends in demand for USD change, it immediately affects the EUR. After the publication of economic data, which negatively affects the dollar, the market immediately shows an increase in purchases of the euro.
We suggest taking a closer look at the main factors affecting the dynamics of the euro in order to understand how best to trade in this currency.
Key factors that influence the EUR exchange rate
There are a number of factors that have a significant impact on the formation of the rate of this asset.
- Prices and inflation rates. So, in order to analyze the inflation, you need the following information: Consumer Price Index for Eurozone, Germany, and France. This index shows how the cost of services and goods changes from the point of view of their consumers. This method is the main indicator of inflation trends and purchase volume. When figures published are higher than predicted, the market sees a rise in the Euro. And when figures are lower than forecasted, the Euro falls.
- Economic sentiment and investor confidence. For analysis, we look at the index of economic sentiment in Germany. If the index is above zero, it shows the optimism of institutional investors, while below it is a sign of pessimism. This indicator is the main one for business. If the figures are higher than analysts’ expectations, the Euro shows growth, while if the figures are low, the Euro weakens.
- Monetary policy. The event for the analysis is the exit of the ECB interest rates, as well as the following press conference of the head of the European regulator. The speech of the ECB head usually indicates how the regulator is going to act regarding the national currency. If the regulator takes a hawkish tone in his speech, we can expect a key rate hike, which will strengthen the euro. If he expresses concern, we may expect no change in the key rate. In addition, it is possible to use the difference in the refinancing rate between the ECB and the U.S. Funds as an indicator of the direction of the euro/dollar pair.
- Economic growth of the European Union. Quarterly Eurozone GDP releases by Eurostat are analyzed for this purpose. These reports tend to cause a lot of volatility in the Euro, especially when GDP figures are higher than predicted.
Popular instruments with the euro
Currency instrument EUR/USD is the most traded on the foreign exchange market. The trading volume at this pair is the largest in the world. Many investors choose to work with this very pair because it has high volatility.
The ability to trade any instrument determines liquidity (the presence of volumes to sell and buy). On this background on a number of instruments, trades are finished when the activity of traders decreases. For example, on rouble pairs, a break is made for the night. In the case of the Euro-dollar, there are no limitations, the trading is taking place 24 hours 5 times a week. The trading session starts on Sunday night and finishes at the end of Friday.
Quite often crosses (rates without dollar – Cross Rate) influence EUR/USD, for example, EUR/CHF or EUR/JPY. The EUR/USD exchange rate may fall in case of strong news on the Japanese economy, which is filtered through the weakening of the EUR/JPY pair.
In the case of EUR/GBP, the euro is the base currency as it comes first, and the pound is the quote currency as it comes second. The euro/pound pair has low volatility. The price of this instrument does not change significantly very often.
EUR and GBP are among the strongest currencies in the world. EUR / GBP is a relatively stable instrument, which makes it actively traded. The market closely follows the pair when its quotes change strongly.
Although you can trade in the market at any time, if you work with the pair EUR/GBP, then it is recommended to choose the European session for trading. In other words, if it’s dark in London, you should not trade.
Where can I trade Euro? We recommend trading in the market through a handy terminal MT4 or MT5. If you do not want to install a trading platform on your computer, then you can use the web terminal, which any major broker, such as AMarkets, has.
The euro is the currency of 19 countries, so quite often the fundamental factors influence the rate. As soon as political or economic news, which involves some EU countries, is released, it is immediately reflected on the chart of the Euro.
This creates a good basis for trading on the news, and at any time there may be new information that can reverse the trend in the opposite direction. Therefore, traders who choose the Euro should always be on the alert.